Last week the Detroit News reported that NHTSA claimed that the White House had nothing to do with the agency’s delay in disclosing its Chevy Volt fires to the public. Supposedly, NHTSA contacted the White House three months after the Volt fires and waited another two months before releasing the information to the public. Whether or not the Obama Administration is being honest about its involvement in NHTSA’s Chevy Volt investigation, it is clear that we are in an unprecedented situation with the President of the US having his reelection chances largely tied to the success of General Motors, which was once an icon of American industry but now epitomizes taxpayer bailouts, crony capitalism and political theater.
President Obama has been campaigning on a platform that touts the Administrations’ intrusion into the American auto industry as a bold success that saved millions of jobs. GM takes center stage as the only remaining American auto manufacturer to have been a beneficiary of the auto bailouts as Chrysler has become majority owned by Italian automaker, Fiat. The politics surrounding GM has intensified with the controversial Chevy Volt drawing criticism from those that are against the spending of billions of taxpayer dollars to fund vehicles like the Volt (much of which goes to wealthy purchasers in the form of a $7,500 tax credit) and praise from green ideologues who claim the vehicle is going to lead to foreign oil independence and a greener planet. Like it or not, the success (or lack thereof) of the much-hyped Volt has been viewed as an indicator of the direction that GM is heading under the ownership of the Obama Administration and US taxpayers, who are still the largest single holder of GM stock.
Having a US President staking so much on the success of a so-called green vehicle, or worse yet a publicly traded industrial corporation, has obvious dangerous ramifications. While claims are made that NHTSA’s Volt investigation was unbiased, the initial statement out of the government agency was, “NHTSA continues to believe that electric vehicles have incredible potential to save consumers money at the pump, help protect the environment, create jobs and strengthen national security by reducing our dependence on oil.” That doesn’t sound like an unbiased opinion from an agency responsible for motorists’ safety. What about President Obama’s claims that he “drove” a Volt and it was a great car? In fact, Obama rolled about ten feet in a Volt which came off of an assembly line. Since when has the leader of America served as Salesman in Chief for tax-subsidized vehicles?
The real danger of an Administration having such a vested interest in the success of GM and the Chevy Volt is that billions of taxpayer dollars get thrown away to give the appearance that GM and the Volt are surpassing expectations. Millions of dollars are spent on government purchases of Volts, some of which are filtered through townships which receive federal grants to buy the cars. Government purchases of all GM vehicles rose 32% in December. And then there are the tax credits, which amount to billions of dollars. Besides the billions going towards EV subsidies, Treasury actually made a special exception for GM as it emerged from bankruptcy so that about $45 billion of tax-loss carryover credits could be utilized by GM to relieve the company of paying its “fair share” of taxes for up to the next 20 years.
The Obama Administration has had an opportunity to sell the taxpayer “investment” in GM for months now. The latest word coming out of Treasury is that the GM stake will not be divested until shares are trading at over $30. How can the Administration be so sure that shares can only go up from here? It is not the job of our government to play market timer with taxpayer funds. It seems obvious that the exiting of our government’s stake in GM is based on politics as the 2012 election nears.
If the Obama Administration did not have such a vested interest in GM, would government purchases still have increased 32% in December? Would NHTSA have proceeded differently with its Volt investigation? Considering the high stakes involved with the performance of GM share price and taxpayers holdings, what other areas might be at risk of corruption? Will the SEC keep as close an eye on GM as it would other corporations that aren’t reflecting upon the President? Can accounting and earnings figures be trusted?
The credibility of GM has suffered as it has falsely touted the Volt as a game changer whose demand exceeded supply. It is reasonable to be suspicious of statements regarding financial health and balance sheet strength. UAW pension obligations have been misrepresented by media sources that have, in the past, proclaimed the under-funding to be a reasonable $10 billion when, in fact, that was only the US portion. The total under-funded amount will be discussed at GM’s next earnings announcement and is expected to be over $20 billion. In addition, GM has been suspected of fudging earnings by stuffing inventory channels in the past, something that I would keep an eye on as they build truck inventories and attribute the build-up to factory retooling shutdowns.
If GM’s turnaround is legitimate and investor confidence returns, it will be indicative of an improving economy. Of course, government help and a $50 billion taxpayer influx helped, but if share price can return to IPO levels of near $33 a share the Obama campaign will have a major boost. Cyclical companies like GM will benefit from a strong economy, but the odds of an Obama reelection benefit most. If the economic expansion does not live up to expectations, conditions will be right for smoke and mirror attempts at driving GM share price.
The suspicions regarding GM’s actions are warranted given the government’s involvement in the company. An exit by Treasury of its holdings would be the first step for GM to regain its credibility. GM should then come clean on the potential for the Chevy Volt and tone down the unwarranted hype on the vehicle. A change of leadership at the company would also be helpful as the Obama appointed leadership has not inspired confidence in the company. If the company can be run with a goal of profitability for shareholders rather than as a campaign asset for those in power and a jobs bank for unionized labor, perhaps a day will come when most Americans can again look at GM as an icon of American industry. I’m not holding my breath.
Mark Modica is an NLPC Associate Fellow.